2016 (5) TMI 515 - AAR - Service Tax

Scope of negative list u/s 66D(1) - educational services - Revenue Sharing agreement - Partnering Agreement to combine their mutual areas of expertise for the setting up and operation of an educational institution - the entire revenue relating to the school will be received in a joint account operated by the applicant and Choice Foundation jointly and revenue share would be drawn from this account by the applicant and Choice Foundation. Held that - with regard to pre-school education and education up-to higher secondary school or equivalent, the partnering person would come under the Negative List and would not be liable to Service Tax. Regarding construction service where the entire consideration is received after issuance of completion certificate - Held that - the construction of complex etc., in this case will not come under the ambit of declared service and not be liable to Service Tax. Renting of Immovable Property. Regarding renting of premises - Held that - the applicant, Choice Foundation and partnering person , are all 3 separate persons under Section 65 B (37) of the Finance Act, 1994. Therefore, service of providing of renting of immoveable property by applicant to partnering person will not be self service . The consideration for renting said property would be received as per the Revenue Share clause in the said Agreement. Therefore, renting of immoveable property would be liable to Service Tax. a) Service Tax is applicable on the revenue share relating to the applicant to the extent it is relatable to rendering of taxable service. - b) Service Tax is applicable on the revenue share relating to Choice Foundation to the extent it is relatable to rendering of taxable service. - c) Service Tax is not leviable on the fees collected from the students to the extent it is covered under the Negative List in terms of Section 66D (l) of the Finance Act, 1994. - d ) Service Tax is payable by a person providing taxable service in terms of Section 68(1) of the Finance Act, 1994. Therefore, in this case, Service Tax will not be payable by the students, as they are not providing any service.

Issues Involved:
1. Applicability of Service Tax on revenue share relating to the Applicant.
2. Applicability of Service Tax on revenue share relating to Choice Foundation.
3. Applicability of Service Tax on fees collected from the students.
4. Recovery of applicable Service Tax from the students.

Issue-wise Detailed Analysis:

1. Applicability of Service Tax on revenue share relating to the Applicant:
The applicant, M/s Choice Estates and Constructions Limited, entered into a Partnering Agreement with Choice Foundation to set up and operate an educational institution. The applicant would handle infrastructural requirements, while Choice Foundation would manage academic aspects. The revenue generated would be shared between the parties. The applicant argued that they jointly provide educational services, which fall under the Negative List of the Finance Act, 1994, and hence, are not liable to Service Tax. However, the Authority observed that the applicant and Choice Foundation are separate legal entities as defined under Section 65B (37) of the Finance Act, 1994. Therefore, services provided by the applicant to the "partnering person" (another person) for consideration will be a service liable to Service Tax.

2. Applicability of Service Tax on revenue share relating to Choice Foundation:
Similar to the applicant, Choice Foundation is also considered a separate legal entity under the Finance Act, 1994. The revenue share received by Choice Foundation, to the extent it is related to rendering taxable services, is subject to Service Tax. The Authority emphasized that the arrangement between the applicant and Choice Foundation is not on a principal-to-principal basis but rather a partnership/joint collaboration, making the services provided by each party liable to Service Tax.

3. Applicability of Service Tax on fees collected from the students:
The fees collected from the students for educational services up to higher secondary school fall under the Negative List as per Section 66D (l) of the Finance Act, 1994. Therefore, these services are not liable to Service Tax. The Authority clarified that the educational services provided to students are exempt from Service Tax, as they are part of the Negative List.

4. Recovery of applicable Service Tax from the students:
Service Tax is payable by the person providing the taxable service under Section 68(1) of the Finance Act, 1994. Consequently, in this case, Service Tax cannot be recovered from the students, as they are not the service providers. The Authority ruled that the liability to pay Service Tax rests with the service provider and not the students.

Additional Points:
- Construction of Civil Structure: The construction of civil structures by the applicant is not intended for sale, and no amount is received before the issuance of a completion certificate. Hence, it does not fall under declared services and is not liable to Service Tax.
- Renting of Immovable Property: The renting of immovable property by the applicant to the "partnering person" is considered a service and is liable to Service Tax, especially after the exemption was withdrawn by Notification No. 6/2014 dated 11.07.2014.
- Services of Architect, Engineer, etc.: Services provided by architects, engineers, and other contractors engaged by the applicant for construction are separate and distinct services liable to Service Tax.

Ruling:
a) Service Tax is applicable on the revenue share relating to the applicant to the extent it is relatable to rendering of taxable service.
b) Service Tax is applicable on the revenue share relating to Choice Foundation to the extent it is relatable to rendering of taxable service.
c) Service Tax is not leviable on the fees collected from the students to the extent it is covered under the Negative List in terms of Section 66D (l) of the Finance Act, 1994.
d) Service Tax is payable by the service provider, not the students, as they are not providing any service.

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